The Role of Public-Private Partnership Approach in Broadband Development

The Role of Public-Private Partnership Approach in Broadband Development

ppp-report-2016-cover-image-600px-320x320For a very long time, communities and cities were divided into “digital haves” and “have nots” by whether or not they had “broadband”. Nowadays, although cables and DLS networks cover a large part of urban communities, a new divide has emerged, the gigabit divide (basic vs developed broadband connectivity). Then, according to Internet Association, a national trade group representing leading Internet companies including Amazon, Dropbox, Facebook, Google, Paypal and Twitter “Access to the Internet is today the modern equivalent to access to railroads, electricity, highways and telephony in previous eras. And just as the federal government recognized and executed its role in encouraging, promoting, and facilitating universal access to those services, the federal government today similarly recognizes its role in promoting and facilitating access to broadband services.” All these factors lead more and more communities to searching for an active role in shaping the future of local next-generation Internet access.

According to this idea and, given that building such networks is extremely expensive, a growing number of municipalities are turning to public-private partnerships to finance and build broadband networks. The problem is that this kind of deals can also fail. An important paper about that is the new report “Successful Strategies for Broadband Public-Private Partnerships”. The paper studies successful deals and, on the contrary, what causes them to fail. The report is written by the Institute for Local Self-Reliance (ILSR), a group that works with urban actors to provide them with innovative strategies and working models that support environmentally sound and equitable economic policies and community development.

First of all, in order to create a true partnership between public and private sector, ILSR report clarifies that public entities and private companies must both have “skin in the game”, i.d. both need to take on the same level of risk. Thus, fully public – for example: Chattanoga, Tennessee; Lafayette, Louisiana and Wilson, North Carolina – and fully private systems – such as US Internet in Minneapolis and Ting in Charlottesville, Virginia – are not considered PPPs because they merely involve both the public and the private sector and they should not be considered a partnership.

ILSR identifies three types of public-private cooperation that get very close to true balanced partnership.

  • Private-Led Investment with Public Support is, in fact, dominated by the private sector and the public sector’s involvement and control is very limited. Google Fiber is an example of this private-led cooperation. In this case, Google Fiber network is designed, owned and operated totally independent of public sector partners.
  • Public-Led Contracting concerns local network projects where the public actor has most of the project’s responsibilities: financing, constructing and owning the network infrastructure. Unlike the Private-Led Investment pattern, here the private sector engagement is generally limited to specific tasks. An example is Leverett, Massachusetts.   
  • Public Assets and Open Access. The network may have some components owned by the public sector and some by the private sector. For example Huntsville, Alabama.

Anyway, the central focus of the report is on true, balanced partnership where public and private sectors share their risk and reward fairly evenly. Although private companies and municipalities have different goals (municipalities can afford a longer payback period in order to meet social goals, private companies are looking for a faster return of investment), yet it is possible to create balanced PPPs. There is no “magic bullet” but it is crucial the result of honest and respectful negotiation. According to Westminster City Council President Dr. Robert Wack: “There has to be a shared sentiment that ‘we are in this together. We will fail together or we will succeed together.’ Whether it is the debt service guarantee or some other thing, the specific detail is not as important as shared willingness to make sacrifices to reach this common goal. That is the key of a successful public-private partnership”.

Then the report explains why those communities have preferred to seek partners:

  • Share Costs: PPPs can spread project’s costs across the partners.
  • Address Risk: no PPP is entirely risk-free and it should not be used merely for the public sector to hide risk from voters. PPPs can introduce new risks that are not present in fully public models, for example to forego some public goals.
  • Digital Self-Determination: PPP can be a way to promote important public interest outcomes that may not occur under private projects such as universal access to high-quality infrastructure Indeed, advocates of municipal broadband argue it’s necessary to ensure cities’ networks reach all residents at an affordable price.
  • Building Expertise: Communities that do not have expertise could develop it or embrace models that require less in-house skills.

An example of  municipality that has implemented successfully this kind of deal, is Westminster, Maryland. First of all, the municipality partner with a new fiber company called Ting to connect every home and business using fiber. Secondly, the city owns the infrastructure and Ting has an exclusive contract for an initial period. Risk is shared between public and private sector because Westminster and Ting share the burden if revenue does not match the debt to build out the network ($21 million general obligation bond). Lastly, universal access to the infrastructure is provided by the city and Ting is protected if the city decides to sell the network.

On the contrary, not all P3s projects are successful. Wireless Philadelphia was an agreement to purchase bulk discounted internet subscriptions for low-income areas n Philadelphia. The system was shut down in four years later, after cost overruns, lack of community support and poor service because Wireless Philadelphia selected a partnership model that was not balanced.
A key lesson from the paper is that PPPs are increasingly viable but are not a panacea, which is why we discuss some failed PPPs. Partnerships can introduce additional risks while minimizing others. This is precisely for this reason that  any PPP has risks and communities should be extremely wary of any potential partner that claims there are no risks with their preferred approach.

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Il futuro della diffusione di Internet nelle città dipenderà in gran parte dalla capacità dei governi locali di saper costruire partnership con gli attori privati in modo da giungere ad uno sviluppo locale co-progettato che tenga contro delle esigenze di tutti coloro che vivono nella città. Il report dell’Institute for Local Self-Reliance cerca di fare luce su questo tema.